The GBP/USD pair continues with its struggle to gain any meaningful traction and languishes near its lowest level since early June touched on Monday. Spot prices currently trade around the 1.2380-1.2375 region and seem vulnerable to prolonging the recent downward trajectory witnessed over the past two months or so.
Firming expectations that the Bank of England (BoE) is nearing the end of its rate-hiking cycle continue to undermine the British Pound (GBP) and act as a headwind for the GBP/USD pair. The US Dollar (USD), on the other hand, remains on the defensive below a six-month top set last week and helps limit losses for spot prices. Traders also seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of this week's key central bank event risks - the highly-anticipated FOMC decision on Wednesday and the pivotal BoE meeting on Thursday.
From a technical perspective, the recent decline along a downward-sloping channel points to a well-established short-term downtrend. Adding to this, last week's breakdown through the very important 200-day Simple Moving Average (SMA) – for the first time since March – was seen as a fresh trigger for bearish traders. The subsequent slide and acceptance below the 1.2400 round figure validate the negative outlook. This, along with negative oscillators on the daily chart, suggests that the path of least resistance for the GBP/USD pair remains to the downside.
Hence, some follow-through weakness back towards testing the May monthly swing low, around the 1.2310-1.2300 area, looks likely a distinct possibility. The said area also coincides with the lower boundary of the aforementioned trend channel, which if broken decisively will set the stage for an extension of the depreciating move. The GBP/USD pair might then accelerate the fall towards testing the 1.2200 round figure before eventually dropping to the next relevant support near the 1.2150-1.2140 horizontal zone.
On the flip side, any recovery back above the 1.2400 mark is likely to confront stiff resistance near the 1.2430-1.2435 region, or the 200-day SMA. A sustained strength beyond might trigger a short-covering rally and allow the GBP/USD pair to reclaim the 1.2500 psychological mark. The recovery momentum could get extended further, though might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near last week's swing high, around the 1.2545-1.2550 area. The latter should act as a pivotal point for short-term traders.
A convincing breakout through will suggest that the GBP/USD pair has formed a near-term bottom and pave the way for some meaningful near-term appreciating move. Spot prices might then climb to the 1.2600 round figure, representing the top boundary of the descending channel. This is followed by the 100-day SMA barrier, currently around the 1.2645 region, which if cleared decisively might shift the near-term bias in favour of bullish traders.
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